On September 21, 2009, the Internal Revenue Service (“IRS”) announced that the deadline for taxpayers to voluntarily disclose unreported income from offshore accounts has been extended from this Wednesday, September 23, 2009, to October 15, 2009.  The IRS cautioned, however, that this is a one-time extension and “there will be no further extensions.”

In general, the voluntary disclosure program for offshore accounts, which was announced by the IRS on March 26, 2009, enables a U.S. taxpayer to become compliant with reporting obligations, avoid harsher civil penalties, and may eliminate the risk of criminal prosecution. 

In a news release (IR 2009-84), the IRS stated that it decided to extend the September 23, 2009 deadline “after receiving repeated requests from tax practitioners and attorneys around the country following an influx of taxpayer requests.”  The IRS further explained that extending the deadline to October 15, 2009 will (1) allow the IRS to provide “relief for those taxpayers who had intended to come forward prior to the deadline, but faced logistical and administrative challenges in meeting it,” and (2) “allow tax preparers and attorneys the necessary time to interview and advise their backlog of taxpayers with these hidden accounts, and prepare the necessary paperwork to qualify for the special penalty provisions.”

The influx of taxpayer requests to enter the voluntary disclosure program for offshore accounts comes in the wake of the United States government’s heightened scrutiny of bank secrecy and offshore tax evasion.  In February, the IRS filed a lawsuit against Swiss bank, UBS AG (“UBS”), seeking to force UBS to disclose the identities of up to 52,000 of the bank’s U.S. customers with approximately $15 billion in assets hidden in their accounts.  In September, UBS entered into agreements with the United States and Swiss governments in which it agreed to turn over 4,450 client names.  Since March, more than 3,000 taxpayers have come forward under the voluntary disclosure program.  Last year, fewer than 100 taxpayers came forward.  According to current estimates, the IRS anticipates handling as many as 10,000 cases related to the matter, half-of-which are expected to come from the voluntary disclosure program.

Taxpayers who have properly reported and paid tax with respect to their offshore account, but did not realize that they had an obligation to file Form TD 90-22.1, Report of Foreign Bank and Financial Accounts (FBAR), were also originally given until September 23, 2009 to file all delinquent FBARs.  Although it is not entirely clear, it appears from the IRS’s website that the IRS has also extended this deadline until October 15, 2009.